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Bernanke Money-Grubs From The .01%

By: Fred Sheehan | Thursday, May 22, 2014

"[Bernanke] gave this stuff out [inside information -FJS], but I didn't realize
what he was saying at the time, so I didn't do a great trade."

Hedge-fund manager David Tepper, after paying $200,000 to take former Federal
Reserve Chairman Ben S. Bernanke to dinner, quoted in the New York Times,
May 21, 2014

Ben S. Bernanke continues to be a man of his times. His mind never looks backward
or forward. It is as if every day is complete within itself, with no attachment
to precedent; no past, no record, no history, and, in the future, he will bear
no responsibility. Some precedent may be helpful to critique former Federal
Reserve Chairman Ben S. Bernanke's current escapade.

After Paul Volcker stepped down from the chairmanship in 1987, he made one,
solitary public comment that could in any way be deemed a comment on the Federal
Reserve. (It was a defense of the new Fed chairman, Alan Greenspan, who had
raised interest rates shortly before the 1987 stock-market crash.) Volcker
held his tongue for 12 years, until 1999. Then, and only then, he simply could
not remain silent while Greenspan sweet-talked Americans into buying NASDAQ
shares at 200 times earnings. On May 14, 1999, the former Federal Reserve chairman
spoke at the Kogod School of Business commencement at American University: "The
fate of the world is dependent on the stock market, whose growth is dependent
on about 50 stocks, half of which have never reported any earnings."

Volcker's observation was obvious at the time but, as usual, the Inner Sanctum
never let the public in on the fix.

After Alan Greenspan resigned in 2006, he behaved just as we expected. From Panderer
to Power:

"On February 12, 2006, two weeks after Chairman Greenspan retired, he received
$250,000 to speak at a dinner Lehman Brothers' hosted for hedge-fund managers.
The New York Post reported Lehman paid $100,000 more than Greenspan's "customary
speaking fee" of $150,000. It was a surprise to many he spoke at all. Caroline
Baum commented on Bloomberg: "At a minimum, Greenspan evinced bad judgment
by not letting time pass before reasserting himself. His refusal to cede the
limelight gracefully...left a bad taste in people's mouths." That he spoke
publicly, and for money, was undignified. This reflected solely on Greenspan.
Worse, he was interfering with the Bernanke Fed. He told the hedge-fund managers
that short-term interest rates would have to rise. The next day, they did....

"[C]entral bankers took their gloves off. Mervyn King, Governor of the Bank
of England (and former colleague of Ben Bernanke at MIT) announced: "I'll only
say that I am very grateful to Eddie George [King's predecessor] that he has
not been in the newspapers and on radio all the time commenting on what the
monetary policy committee is doing. In due course I will ensure I do exactly
the same thing."

It will be interesting if Mervyn King reprimands his former cellmate from
M.I.T. He may. King has been one of the few central bankers who admits central
banks played a part in the "the worst financial crisis in global history, including
the Great Depression" [B. Bernanke to the FCIC in 2009. This declaration reminded
the Committee "back off, I saved the word" - FJS]

The media has decided Bernanke is "in play." This is a matter of personal
perception, ratcheted by a New York Times story on Thursday, May 20,
2014. The title is telling: "After the Fed, Bernanke Offers His Wisdom for
a Big Fee."

The title itself is a message. "Open season" on Bernanke is now permitted.
Elizabeth Warren explained this distinction in her recent book, A Fighting
Chance. Warren is now a senator from Massachusetts. At the time of the
incident she recalls, Warren was poking holes in the Old Boys impregnable frat
house. Larry Summers decided to sit her down. Warren writes in A Fighting
Chance: "He teed it up this way: I had a choice.... I could be an insider
or I could be an outsider. Outsiders can say whatever they want. But people
on the inside don't listen to them. Insiders, however, get lots of access and
a chance to push their ideas. People -- powerful people -- listen to what they
have to say. But insiders also understand one unbreakable rule: They don't
criticize other insiders."

Permitting the possibility a Times editor was asleep at the wheel,
Bernanke has lost protection. He would be the second insider cut loose in the
past two weeks. On Monday, May 12, 2014, James Freeman teed up Timmy Geithner's
new book, Stress Test in the Wall Street Journal. Freeman is
the deputy editor of the Journal's editorial page. In the world Summers
described, the Journal would hire an outsider to toss Geithner onto
the ash heap of history.

The New York Times and the Wall Street Journal will always protect
their own interests, first. The Times, for instance, was an early advocate
for U.S. military operations in Vietnam. That changed.

The Times lashing lacks historical perspective. It states: "Mr. Bernanke
is following a well-trodden path that his predecessor, Alan Greenspan, and
other Washington policymakers have taken." This is recent, though. Certainly,
getting paid $200,000 to $400,000 for dinner, night after night, is new.

Particularly revolting is Bernanke selling himself (being a family publication,
a more accurate verb lies dormant) to the .01%. For appearance sake alone,
such blatant money-grubbing offers grist to those who see the Federal Reserve
as hostage to banking interests. Similarly, claims of "Federal Reserve independence" and
other antiseptic nonsense will lose credence to a jaundiced eye.

A perceptive Congressman who sits on the Financial Services Committee may
wish Bernanke was still in the penalty box. For instance, Jim Bunning long
retired now, could be his party's pick, after, of course, finance and the economy
come unplugged. (Any day now. You heard it here first, and second, and third...)

On December 9, 2009, Bunning let loose on the prof: "How can you regulate
systemic risk when you are the systemic risk?" This is funny, but also every
word is true, including "you" - not, the "Fed," the "FOMC," the "literature" -
and "the" - not, his model or his (non)-theory.

Should some Congressman decide to subpoena the Richard Whitney of 2014, this
is the time to gather C-Span clips for a presidential run in 2016. The following
background may help. It addresses Bernanke's complete lack of understanding
- despite his responsibility - for money-printing without license.

"Using high leverage to improve corporate performance is much like encouraging
safe driving by putting a dagger, pointed at the driver's chest, in every car's
steering wheel; it may improve driving but may lead to disaster during a snowstorm."

April 9, 2009 ~ From the April 9, 2009, Bloomberg story: "Bernanke's speech
yesterday detailed steps that the Fed can take to remove that liquidity, including
soaking up cash by the issuance of special bills."

Special bills?!?

60 Minutes, March 2009:60 Minutes voiceover: "That makes it all the more outrageous when he
hears of financial firms handing out perks and bonuses after they've taken
bailout money."

Bernanke: "The era of the high living, this is over now. And that they need
to be responsible and use the money constructively.... [Bankers need to] have
a reasonable sense of humility based on what's happened in the past 18 months."

60 Minutes, December 5, 2010:60 MINUTES: "You have what degree of confidence in your ability to control
this?"

BERNANKE: "One hundred percent."

"With all due respect, US policy is clueless. It's not that the Americans
haven't pumped enough liquidity into the market. Now to say let's pump more
into the market is not going to solve their problems."

SENATOR TOOMEY: "What would the impact be of actually having to liquidate
a big portion of your holdings on the bond market, on the equity markets?

CHAIRMAN BERNANKE: "We don't anticipate having to do that."

SENATOR TOOMEY: "Not ever?!"

[Bernanke went on to confirm "not ever." - FJS]

"First, innovation, almost by definition, involves ideas that no one has yet
had, which means that forecasts of future technological change can be, and
often are, wildly wrong." ~ Ben S. Bernanke, May 18, 2013:

"[N]ot only are scientific and technical innovation themselves inherently
hard to predict, so are the long-run practical consequences of innovation for
our economy and our daily lives." ~ Ben S. Bernanke, May 18, 2013

"THE FED HAS NO ENDGAME," MSM headline, November 4, 2013

"A brief update on the bloated condition of the Federal Reserve's balance
sheet. At present, the Fed holds $3.84 trillion in assets, with capital of
just $54.86 billion, putting the Fed at 70-to-1 leverage against its stated
capital. Given the relatively long maturity of Fed asset holdings, even a 20
basis point increase in interest rates effectively wipes out the Fed's capital.
With the present 10-year Treasury yield already above the weighted average
yield at which the Fed established its holdings, this is not a negligible consideration." ~
John Hussman, November 5, 2013

"Larry Summers is worried that the Federal Reserves' efforts to stimulate
the economy could end up doing damage. 'Low interest rates could become a source
of instability down the road,' said Summers....What's more, Summers said that
the Fed's policies are likely making the income inequality problem in the U.S.
worse, by helping wealthy Americans who hold the majority of stocks, more than
the rest of the country. 'A policy that works by pumping up asset prices is
not going to be egalitarian,' said Summers." Fortune, May 15, 2014.

Not in the short-term, Larry.

LIFE GOES ON OUTSIDE THE ECCLES BUILDING:

MarketWatch headline: SHE FOUGHT WALL STREET, AND NOW SHE'S OFF TO JAIL: OPINION:
UNLIKE CEO'S, THIS 'OCCUPY' PROTESTOR COULDN"T AVOID PROSECUTION. by David
Weidner: "Cecily McMillan was sentenced yesterday to 90 days in prison for
assaulting a police officer who was trying to clear Zuccotti Park in lower
Manhattan, where Occupy Wall Street protesters had gathered. McMillan, 25,
denied the second-degree assault charge."

May 20, 2014

To add a populist tone, which Ben Bernanke is so generously encouraging: Nor
could Cecily McMillan afford to have dinner with the central banker, which,
in any case is most useful to hedge-fund managers such as David Tepper, who
paid himself over $3 billion in 2013.

"Pininterst, Uber - $10 billion is the new $1 billion."

May 20, 2014

"Anton Purisima has filed a lawsuit in a Manhattan court for two undecillion
dollars. "The sum, written as two followed by thirty-six zeros, is likely a
new record for a demand in a lawsuit, the New
York Post says." It's also more money than even exists in the world
by a long shot, Gothamistnotes."

May 20, 2014

Not for long, Gothamist.

"60 Minutes" March 2009

"If you had a message for the American people in this interview what would
that be?"

Bernanke: "...I'd say first of all the Federal Reserve is here and is going
to do everything possible to support the economy."

Sheehan serves as an advisor to investment firms and endowments. He is the
former Director of Asset Allocation Services at John Hancock Financial Services
where he set investment policy and asset allocation for institutional pension
plans. For more than a decade, Sheehan wrote the monthly "Market Outlook" and
quarterly "Market Review" for John Hancock clients.

Sheehan earned an MBA from Columbia Business School and a BS from the U.S.
Naval Academy. He is a Chartered Financial Analyst.